Forecasting a "long harsh winter ahead" in terms of work, and preparing to "hunker down," Keppel Offshore & Marine Ltd. is bracing for tough times for the construction of oil rigs.
According to Bloomberg, the company, which is the world's largest builder of oil rigs, does not see growth ahead for the industry, due to a surplus of oil and lower profits. The company said that the decline in orders for rigs is due to the number of rigs already in use, and a drop in the fees to lease a rig.
There may be an increase in the need for rigs should production rebound and reserves begin to decline. In the meantime, Keppel has reduced its workforce by 11,000 people. The company is considering further reductions and shuttering some of its operations due to the excess in supply. The company's net income dropped by 48 percent during the second quarter to $152 million USD.
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There have been requests to defer the delivery of jackup rigs to Mexican company Grupo R, and to Parden Holding, which is based out of Uruguay. Keppel has said that it will be compensated for the deferments. Adding to the company's woes, Sete Brasil filed for bankruptcy earlier in the year and has not been making its payments. Sete Brasil makes up $10.5 billion in orders for Keppel in drill ships and semi-submersibles. Sete Brasil fell on hard times after Petroleo Brasileiro SA, the company's only customer, was charged with allegations of kickbacks; and Sete Brasil found itself unable to secure long-term financing.
Keppel's Chief Executive Officer Loh Chin Hua stated: "What we have seen in the industry, it's not just about oil prices. We have to look at the oversupply of rigs and the current situation with the traditional customers. While the company is confident in the long-term fundamentals of the offshore and marine industry, we are mindful that a long downturn may be upon us and we have to position our business accordingly."
Lincoln Brown for Oilprice.com
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